Australia c.bank on hold as economy slows to a crawl

* RBA leaves official cash rate at 1.50 pct, as expected
* RBA expects economy to grow around 3 pct in 2019
* Acknowledges growth slowed in second half of 2018
* GDP data due Wednesday, Q4 q/q growth seen at +0.3 pct
By Swati Pandey and Wayne Cole
SYDNEY, March 5 (Reuters) - Australia's central bank stuck
to its upbeat view of the economy after it held rates at record
lows in a widely expected move on Tuesday, just a day before GDP
data is likely to show domestic momentum almost stalled last
quarter.
The Reserve Bank of Australia (RBA) ended a 30th straight
meeting with rates at 1.50 percent and signalled a steady policy
outlook as it awaits a pick up in economic growth and inflation.
That wait may prove longer with a run of soft data from
consumption to housing this week leading analysts to downgrade
forecasts for fourth-quarter growth to near nothing. Official
figures on gross domestic product (GDP) are due on Wednesday.
A weak number could jeopardise re-election prospects for
Australia's centre-right government which has been pitching
"jobs and growth" as its key economic mantra.
The Liberal-National government faces a tough election in
May and is widely expected to entice voters with tax cuts and
more spending in its annual budget on April 2.
Analysts polled by Reuters suspect the economy expanded by a
sub-par 0.3 percent in the December quarter, after a
disappointing 0.3 percent rise in the third quarter.
Annual growth is seen slowing to 2.5 percent, from 2.8
percent, making the RBA's call for 3 percent this year look
increasingly optimistic.
A flat print could lead the RBA to shift to a dovish stance
from its current neutral bias, Citi economist Josh Williamson
said in a note. The central bank last month abandoned its
long-held tightening bias.
RBA Governor Philip Lowe acknowledged Australia's A$1.8
trillion economy may have slowed over the second half of 2018.
Still, he held out the hope for growth to pick up to around 3
percent this year led by rising business investment, higher
government spending and stimulatory monetary policy.
Another reason for the RBA's confidence in the economic
outlook is a robust employment sector.
"The stronger labour market has led to some pick-up in wages
growth, which is a welcome development," Lowe said in a brief
statement accompanying the bank's rate decision.
"The improvement in the labour market should see some
further lift in wages growth over time, although this is still
expected to be a gradual process."
Lowe again pointed to household consumption as "the main
domestic uncertainty" especially given anaemic wages growth and
sliding housing prices in the nation's biggest cities of Sydney
and Melbourne.
So far, Lowe has played down the damage done by the fall in
home values, noting that it comes after a decade of booming
prices. The housing market will be the topic of his speech on
Wednesday.
A CUT?
The RBA's overall optimism isn't shared by many economists
who expect a slowdown in domestic activity this year would push
the central bank to further ease policy.
Interest rate futures are pointing to an 86 percent
probability of a cut to 1.25 percent by the end of this year.
Lowe has conceded that an easing in the 1.5 percent cash
rate might be contemplated if the labour market takes a turn for
the worse and unemployment starts to rise from the current 5.0
percent.
"We think rate cuts this year, while not guaranteed, are now
more likely than not," said Nomura economist Andrew Ticehurst.
"At heart is a weaker regional and global growth
environment, which comes at a poor time for Australia, given the
local dynamics of a 'stretched' consumer."
He is tipping a cut in both July and August, taking rates to
a new all time low of 1 percent.
Data out earlier showed net exports trimmed 0.2 percentage
points from GDP, double that expected by analysts.
A saving grace came from government spending which added a
bit more than 0.3 percentage points to GDP in the quarter.
Public spending accounts for almost 24 percent of
Australia's annual GDP and a much-needed binge on infrastructure
is proving a crucial supporter of growth across the economy.
($1 = 1.4114 Australian dollars)
(Reporting by Swati Pandey and Wayne Cole
Editing by Shri Navaratnam)
First Published: 2019-03-05 03:20:04
Updated 2019-03-05 07:22:35

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